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Private Capital Markets: Valuation, Capitalization, and Transfer of Private Business Interests + Website, 2nd Edition by Robert T. Slee

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CHAPTER 15

Private Business Valuation: Conclusion

Chapters 3–14 cover the concepts underlying private business valuation. These concepts constitute more than a disparate group of approaches to value. Their cohesiveness is due to a number of fundamental theoretical constructs underlying private business appraisal. The concepts of private appraisal are derived, in large part, from risk and return. Consider these facts:

  • Private investor return expectations drive private valuation.
  • Private business appraisal can be viewed through value worlds.
  • Private business valuation is a range concept.
  • Valuation is triangulated to capitalization and business transfer.

PRIVATE INVESTOR RETURN EXPECTATIONS

Private return expectations, defined as the expected rate of return that the private capital markets require in order to attract investors, drive private business valuation. The private capital markets house all of the return expectations of private investors. Expected return in this context has many synonyms, including discount rate, expected rate of return, cost of capital, required rate of return, and selling multiples. All are used to describe expected return from a slightly different perspective.

Some observations are important relative to return expectations:

  • They emanate from the capital side of the private capital markets triangle. In other words, private return expectations are found in the private capital markets by viewing the Pepperdine Private Capital Market Line (PPCML), as shown ...

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